Taxing Remote Work—What You Need to Know

By Kristen D. Berdar

What taxes do remote workers and their employers need to worry about? It varies by state, but New York is especially active in collecting state income taxes from employees who don’t live or work in the state.

Taxing Remote Work—What You Need to Know

It used to be pretty simple for workers and their employees: If you worked at an office in New Jersey, you (the employee) paid federal and New Jersey state taxes on your income. But now many employees are living and working remotely, leading to complications that both businesses and their workers need to be aware of.

New York is especially aggressive at collecting state income taxes from remote workers, so we’ll focus on the situation there. Just be aware that rules vary greatly by state.

The employer convenience rule

New York is one of a handful of states with some variation of what’s known as an employer convenience rule. Convenience rules basically say that if an employer lets a person work remotely from their out-of-state home—even though it’s not necessary for them to do so—the worker needs to pay the same state income tax as they would if they were sitting in an office in New York.

You can imagine why states like New York, as well as others including Connecticut, Delaware, and Pennsylvania, want to tax remote workers. Many states suffered a revenue shortfall during the pandemic and are playing catch up.

The laws also help to ensure that states will continue to receive the income tax payments they’re accustomed to from workers, even if a pandemic, natural disaster, high housing costs, or other issues cause more workers to “phone it in” from out of state.

The bona fide employer office exception

There is a way for remote workers to get around paying New York income taxes. To do so, their home office must qualify as a “bona fide employer office.” The general idea is that the worker is exempt if they have no choice but to work remotely because they can only access specialized facilities at their remote location.

The NYS guidelines o provide a long list of secondary and tertiary factors that help determine if a worksite qualifies as necessary under state law, but as with everything about taxing remote workers, it’s complicated so we suggest you consult with your tax providers.

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